ProFrac Holding Corp. (ACDC) Q1 2022 Earnings Report, Transcript and Summary

Greetings, and welcome to the U.S. Well Services First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Erin C. Simonson, Vice President, and Corporate Secretary. Thank you Erin, you may begin.

Thank you, Operator and good morning, everyone. We appreciate you joining us for the U.S. Well Services conference call and webcast, to review the first quarter 2022 result. Joining us this morning on the call, our Chief Executive Officer, Kyle O'Neill and Chief Financial Officer, Josh Shapiro. Following their prepared remarks, the call will be open for Q&A. Earlier this morning, U.S. Well Services released its first quarter 2022 earnings. The earnings release can be found on the company's website at www. uswellservices.com. U.S. Well Services also intends to file its quarterly report on Form 10-Q with the SEC this morning. Please note, that the information reported on this call speaks only as of today. And therefore, time-sensitive information may no longer be accurate, as of the time of any replay or transcript reading. In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States Federal Securities Laws. These forward-looking statements reflect the current views of U.S. Well Services management. However, various risks, uncertainties, and contingencies could cause our actual results, performance, or achievements to differ materially from those expressed in the statements made by management. The listener is encouraged to review today's earnings release and U.S. Well Services filings with the SEC to understand those risks, uncertainties, and contingencies. Also, during today's call and webcast we will reference certain non-GAAP financial measures, reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release. And now I would like to turn the call over to U.S. Well Services CEO, Mr. Kyle O'Neill. Kyle O’Neill: Thanks, Erin and good morning everyone. Two years ago, this time, the outlook for the pressure pumping industry in the traditional energy industry more broadly, was bleak. The onset of COVID-19 pandemic destroyed demand for crude oil and refined products. In many questions, whether the world's demand for oil had peaked and if the industry was viable. What a difference 24 months can make. The price of crude oil and natural gas globally, is sending a clear signal to the market, for the world needs more of what our customers produce. Resulting call and American energy production has created a step change in demand for pressure pumping services at a time when capacity is tight, supply chains are bottle necked and capital for expansion remains elusive. We believe, U.S. Well Services, is well-positioned in this environment and their business trajectory is improving with each passing day. Before we reflect on the first quarter and discuss the business and market outlook, I'd like to take a moment to thank our Chairman, Joel Broussard, for his dedication and service to U.S. Well Services. In 2013, when Joel first had the vision of electrifying pressure pumping operations to reduce the environmental impact, few believed the initiative would be successful. Now less than a decade later, largest EMP operators and pressure pumping service providers, have largely accepted that electric frac fleets represent the future of the industry. It has been my great pleasure to work with Joel over the last several years, and I look forward to continuing to work closely with him in his new role, as our Chairman. The first quarter of 2022 marked the turning point for U.S. Well Services and it's ongoing transition. We generated approximately $41.2 million of revenue, and a loss of $3.5 million of adjusted EBITDA for the quarter. We averaged 4.4 fully utilized frac fleets. While these headline results are disappointing, I believe there's much to be encouraged about beneath the surface. When we initiated our exit from the diesel pressure pumping market in late Q2 of 2021, we recognized that we would experience several quarters of turbulent results. Our company had the right people and assets in place to develop, build, and deploy the next generation of Clean Fleet technology. Our difficulty in absorbing these costs with a lower active fleet count, has weighed heavily on our quarterly financial performance. In 2019, we averaged roughly $2.6 million of cash G&A per fleet on an average of 9.9 active fleets. Early our average cash G&A per active fleet for the last three quarters and for Q1 of 2022 was approximately $4.75 million and $5.7 million respectively. As we deliver our new Nyx Clean Fleets and ramp backup to scale, overhead absorption and profitability will continue to improve. Last quarter we mentioned that we had successfully restructured several existing contracts, expected to see the benefit of these changes late in the first quarter of 2022. Although the total revenue only increased 6% sequentially in the first quarter, the month of March totaled over $20 million of revenue, or 49% of our revenue for the quarter. The massive jump we saw in revenue was partially driven by higher active fleet count, but was also driven by the fact that our fleets were positioned with contracted customers at favorable pricing, where they will remain for an extended period of time. Our annualized March 2022 exit rate was approximately $41 million of revenue per fleet with over $10 million of gross profit contribution per fleet. The month of April will be a considerable improvement to our March exit rate. As I said before, I believe the business has truly turned the corner. The value proposition for electric fleets is improving daily. Diesel prices have hit an all-time high and diesel inventories are low in many parts of the country. Despite the sharp rise in natural gas prices, we're continuing to see a widening gap between the fuel costs for conventional diesel fleet and electric fleet powered by field gas. Historically, we've seen our customer say, between $1 million and $1.5 million per month using field gas. In today's environment, we believe these fuel savings exceed $2.5 million per month. Finally, one last point of encouragement that I'll make, is the trend in our repair and maintenance cost. Our decision to exit the diesel pressure pumping market was driven by two main considerations. First we believe the electric segment of the market offers premium pricing, higher barriers to entry. And second we believe that the electric fleets are longer lived assets with lower maintenance costs. With our fleet now almost fully electric, we've seen our repair and maintenance costs on a per pump hour basis decrease 40% relative to full-year 2019 levels. Over the long term, our ability to generate higher revenue with lower operating costs and overhead spread across the larger fleet should result in some of the most attractive economics in our industry. We think our business is incredibly well-positioned moving forward. Since mid-2019, pressure pumping service companies have leveraged spare capacity to support increasing completion intensity, and differ their maintenance. Today, the industry capacity is as tight as it's been in nearly decade. Most service providers are sold out, and for most the lead time to deliver a new fleet is both long and uncertain. As a result, leading-edge pricing has recovered meaningfully, and now exceeds pre -pandemic levels, even as adjusted for inflation. Right now the biggest challenge is that faced pressure pumpers, our cost of inflation, labor scarcity, and logistical bottlenecks creating shortage of goods. These challenges not only impact service provider’s ability to ensure operational continuity in quality, but also limit their ability to increase capacity, as -- in reaction to the current market dynamic. This is where I believe U.S. Well Services is incredibly well-positioned. We expect to deploy our first new build Nyx Clean Fleet in Q2, followed by another in early Q3, and two more in early Q4. We also have existing fleets that will be available late this year. U.S. Well Services will have to supply of high-spec all electric horsepower to meet our customers needs. Our supply chain team has also been actively working to lock in pricing in order to stem the impact of cost inflation for critical goods and services. And we continue to work to attract, develop and retain the best tail in the industry. Finally, before Josh goes through the specifics of our financial results, I want to take this opportunity to thank to U.S. Well Services team. Our team has overcome tremendous challenges over the last several years, it has demonstrated an unwavering commitment to safety and execution. I'm excited to show the market what we can do when we combine best-in-class people with our best-in-class technology amidst the favorable market backdrop. And with that, I'll turn it over to Josh.

Thanks, Kyle and good morning everyone. U.S. Well Services averaged 4.7 active fleets during the quarter with the utilization rate of 94%, resulting in 4.4 fully utilized fleets. We exited the quarter with six active fleets and expect to average six to seven active fleets for the second quarter of 2022. Total revenue for the first quarter was $41.1 million, up from $38.9 million last quarter. While total revenue increased 6% sequentially, we saw service and equipment revenue increased 17% quarter-over-quarter, as we began to see the benefit of improving pricing for our services in late Q1. Revenue for material, such as sand, chemicals and trucking declined 45% sequentially, as we did not provide sand for any of our customers during the first quarter of 2022. Our cost of sales for the quarter is $40.7 million, down 2% quarter-over-quarter, from $41.3 million in the fourth quarter of 2021. Much of this sequential decrease was driven by lower costs for materials and reduced heavy equipment transportation cost, as we completed repositioning our fleet in Q4 to bring equipment to contracted customers for 2022 work programs. I would note, that we're definitely seeing signs of inflation across our supply chain. To date, we've seen costs increase 8% to 10% for most items versus 2021 levels. We believe we've locked in pricing for many critical components throughout the end of the year, will continue to be impacted by rising costs for fueled lubricants, as well as fluid ends and high pressure iron, all of which are exposed to surging cost of underlying commodities. SG&A was $8.3 million for the first quarter 2022. Net of stock-based compensation and other non-cash charges, SG&A was $6.6 million, which compares to $5 million for the fourth quarter of 2021. Sequential increase in SG&A was primarily related to personnel costs and professional fees. Adjusted EBITDA for the first quarter was a loss of $3.5 million, which is an improvement relative to the loss of $7.9 million in the fourth quarter of 2021. On an annualized basis, adjusted EBITDA per fully utilized fleet, was a loss of $3.2 million for the quarter. On an accrual basis, U.S. Well Services spent approximately $2 million of maintenance capital expenditures during the first quarter of 2022, and deployed approximately $10.3 million for growth capital expenditures related to our new build clean fleets. We anticipate spending approximately $95 to $115 million, over the remainder of the year to complete the build-out of these fleets. Turning to the balance sheet, the company ended the first quarter of 2022, with $41 million of cash, and restricted cash, and $8.5 million of ABL availability. With that, I would like to turn the call back to Kyle for some final remarks. Kyle O’Neill: Thanks, Josh. We're excited to deploy our new clean fleets and implement the final phase of our all electric strategy. We think the future is bright for U.S. Well Services and look forward to delivering for customers and our shareholders. Operator, please open up the call to Q & A.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] A moment please while we poll for your questions. Our first question is coming from the line of John Daniel with Daniel Energy Partners, please proceed with your question.

Good morning, guys. Thank you for including me. You've got the four fleets that come this year. I know you're probably reticent to given official forecast for demand for new fleets in 2023. But I'm just curious, can you with lead times as long as they are, can you speak to maybe some of the components parts, if you will, that you may have pre -purchased to potentially continue at new build program and at’23, any color would be appreciated?

Yes. Sure. Hey, John. So yeah, we do have some of the longer lead time components secured so that to the extent we wanted to react to some of the demand that we're seeing, we could deliver fleets in 2023. And based on what we have today, we could deliver those fleets in early 2023. However, at this point, we've not made any commitments to build any fleets despite the demand that we're seeing.

Fair enough. And when on the guidance for Q2, that's averaging six to seven fleets. I'm assuming that's including one diesel fleet or is there two in there?

That's one.

Just one? Okay. That's all I got. [Indiscernible] Thank you, guys.

Thanks Daniel.

Thank you. Our next question is come from the line of Alexandra Szabo with Stifel. Please proceed with your questions.

All right, thank you. Good morning, everyone. And thanks for taking my question.

Hey, good morning.

So just out of curiosity, can you just help us understand the drivers of the EBITDA per fleet and if you think it's possible that you could see break-even levels in Q2’22, and maybe the cadence moving forward for the rest of the year.

Yeah, absolutely. I mean, I think we put in our press release and talked about a little about the earnings call that we saw dramatic increase in our revenue, grew it beginning March 1st, and we continue to see that trend so far in Q2. That's brought our EBITDA per fleet up over our gross profit, I guess, over $10 million. And we continue to see that improve throughout the year. The big driver of increased profitability or at least the biggest leverage that we have to pull, is just getting more fleets out in the field. It's really spread our fixed SG&A costs over more fleets.

Thanks again and thanks for the color. Kyle O’Neill: Anytime.

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for any closing comments. Kyle O’Neill: Thanks, everyone for joining. Have a great day.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference; you may disconnect your lines at this time. Have a great day.